As Goes Disney

As goes Disney, so goes the country. That phrase has some merit as The Walt Disney Company reaches so many Americans. The reach has clearly crossed oceans too. The company had already embraced the Digital Age, which served it well during the pandemic. Disney just reported a blockbuster quarter, which provided great insight as to how people are spending time and money. We study the results to extrapolate across other industries and gauge where things are headed. The Walt Disney Company is a really good barometer for economic activity.

Disney generated $17 Billion in revenue during the Summer quarter. This was a significant increase from the $11.8 Billion from a year ago. The Disney theme parks saw their revenue more than triple from last Summer, when the Covid lockdown was in peak form. Disneyland, in California, was open just 65 days during the recent quarter, but saw a big pickup after the statewide restrictions were lifted June 15th. Disney Paris was open for just 19 days during the third quarter. Both parks were closed for the entirety of Q3 last year. Disney World in Orlando was basically at capacity every day in the quarter. The company said that park reservations are even stronger for the current quarter, with no real signs of cancellations due to the Delta variant spike. One could argue that Disney World is the safest place in the Sunshine State. Disney expects its US theme parks to return to full staffing by the end of the year.

The Walt Disney Company has weathered a once-in-a-century storm. A company that for decades counted on advertising and traffic, saw the Economy effectively shut down. A year ago, theme parks and movie theaters were at limited capacity or closed around the globe. Many sports events were delayed or canceled. It started with March Madness. It was followed by the NBA and then the Olympic delay. Advertisers slashed spending across the board. That pushed Disney’s earnings deep into the red and forced the company to even suspend its dividend.

So while Disney navigated the choppy waters of Covid, which dragged down its theme parks and the Box Office, it went all-in on its streaming business. That platform is called Disney+. Americans streamed videos in 2020 like never before. Disney+ now has 116 Million subscribers. It was half that a year ago. The Street thought the growth would slow this Summer as America reopened. Disney beat the Street. Like so many things in this Digital Age, the trend was already in place. Covid merely accelerated it. And Disney seized the opportunity.

Disney is making a big bet on the direct-to-consumer platform that is Disney+. It found instant success with The Mandalorian series as well as the musical Hamilton. The whole Disney library can be found there. The company tried a hybrid approach with the highly anticipated Black Widow film, part of the Marvel content it acquired a few years ago. The film was expected to be another Blockbuster at the Box Office. Covid changed that. It debuted simultaneously in theaters and on Disney+. This hybrid distribution for films is a big change for the traditional Hollywood. Hybrid is an active term these days. Covid seems to be making it permanent. It seems to be very popular by many consumers, not named Scarlett Johansson.

Things are far from normal, as evidenced by the Tokyo Olympics. The athletes competed their hearts out. But the seats were empty. And NBC’s TV viewership was the lowest on record. A mere 15 Million Americans watched every day, on average. That was a 42% decline from the 2016 games. But it’s what you do with what you’ve got that counts. It’s that sportsmanship and competitive spirit that matters most; The thrill of victory and the agony of defeat. It’s the way to that medal that counts. Overcoming challenges is what life’s about. The reopening of America, which began in the Spring with the vaccine rollout, accelerated to another speed over the Summer. But the Delta variant slammed on the brakes for much of the nation in August. Schools are back in session, but with strict guidelines for most. Companies are pushing back their office returns too. Unfortunately, the politics of Covid make things so much more complicated.

Americans have been traveling this Summer. Pent-up demand exploded in July. TSA recorded on average over 2 Million travelers per day consistently. It’s by far the largest number since the pandemic began. But it’s still only 80% of the total for the Summer of 2019, pre-Covid. And now, things seem to be reversing. Southwest said it is experiencing an increase in flight cancellations. OpenTable announced a reduction in restaurant traffic. Airbnb sees a slowdown too, lowering expectations for the rest of Summer. Americans seem to be getting cautious again. Even credit card spending was down.

The Delta variant has presented a new challenge and seems to be slowing economic activity again. The big cities, like New York, Chicago and San Francisco, really haven’t experienced the same recovery as the Sunbelt states. Two of said states are where Disney parks reside. All 3 of Disney’s hotels in Anaheim are open and at full capacity. The Orlando hotels are at roughly 70% capacity, but they are much bigger in size and number.

The Market is taking all of this in stride on this Friday the 13th. The S&P marked the 48th record high for the year. It’s up 10 consecutive months, something that has not happened very often in the last 60 years. Rotation continues at a swift pace, but volume is really low. August is seasonally slow. Despite schools back in session, many investors appear to still be in vacation mode. Equity leadership has narrowed again. Despite the Friday gain, there were actually more stocks down than up. There’s every opportunity for a sell-off and another healthy correction. It just hasn’t happened. This lazy trend might continue for a couple more weeks. But get ready for September. Activity will return big time, particularly in Washington and within Corporate America. We will certainly know more about Covid heading into Fall. The Market seems to be looking past the present and likes what it sees in the future.

Have a nice weekend. We’ll be back, dark and early on Monday.


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